Global Investment: Is Somalia Prepared?

Published on 14th May 2019

For many years Africa was not given attention and was thus dubbed the forgotten continent. In terms of social and geopolitical importance on the international stage, the continent was relegated to the bottom of the table. Its name became synonymous with starvation, political chaos, civil wars, corruption and backwardness. When international investors and savvy entrepreneurs discussed investing in short or long-term projects in energy, telecommunication and travel sectors or the consumption of the large middle class in South-East Asia, Africa was considered a place of no opportunities.

However, that has changed. The continent is now considered to be one of the most investment desirable destinations. Last summer, the continent received some of the most powerful heads of state and emerging markets. By the end of August, Africa received leaders from China, Brazil, Turkey, India, Argentina, the United Kingdom, France, Germany, South Korea, and Russia. In March this year, France’s president became the first serving French president to visit Kenya where he signed deals worth over $2 billion.

These leaders traveled different times for various purposes such as attending multilateral summits, opening new embassies and inaugurating new major investments. For example, India’s Prime Minister Narendra Modi visited Uganda and announced the opening 18 new embassies across the continent while, in the same month, Turkish president and that of Argentina attended the BRICS (Brazil, Russia, India and China and South Africa) summit in South Africa.

All these leaders shared one common goal: developing close ties with Africa in order not to miss the emerging potential opportunities in the continent. Most of the world leaders see that their prosperity and future development are tied to Africa’s.

Since the year 2000 when China officially started its direct trade relationship with Africa, the attention on the continent has been gaining momentum. Although China gained the most interest of international media and political and economic commentators, other countries, both traditional partners and new entrants, increased their presence in the continent. Between 2010 and 2017, 65 countries expanded their trade with Sub-Saharan Africa.

East Asian countries such as Thailand and Indonesia, in addition to China, have dramatically increased their trade with the continent, for example. Russia as well as several East European countries including Bulgaria and Serbia have also doubled their trade with the region while India became the continent’s second largest trade partner in 2016.

In addition to the increased trade, diplomatic engagements have seen a surge. Since 2010, over 150 new embassies were opened in Sub-Saharan Africa. Turkey and Qatar are leading the race with 16 and 12 new embassies respectively. Moreover, several governments inaugurated new policies towards the region or established routine summits with the continent’s leaders. For example, Hungary established its “opening to the South” policy in 2015 while Poland unveiled its “Go Africa” policy in 2013. Indonesia held its first Indonesia-Africa summit in April last year which about 500 delegates from 46 African countries, development partners and international organizations participated along with 200 Indonesian participants comprising government officials and private sector. Similarly, Kuwait hosted the third Arab-Africa summit in 2013 while Japan will host the seventh Japan Africa summit next year.

Africa’s main attraction is no longer its extractives but its rapidly enlarging economy, burgeoning population and unprecedented consumer demands. Six of the ten fastest growing economies in the world are in Africa. The economy of Sub-Saharan Africa grew an average of 3.5% in 2016 becoming the second highest in the world after Asia and the IMF predicted it would expand about 4.3% in 2020. Africa’s inhabitants are projected to reach 2 billion by 2050 and 4 billion by the end of this century. 62% of this population is under the age of 25 and it is predicted that Africa will have the largest work-age population of 1.1 billion in the world by 2034. This dramatically growing populace needs to be fed, clothed, transported, cured and educated - meaning the consumption is ballooning as well.

According to McKinsey Global Institute, Africa’s consumption has been rising an average of 5% and by 2015 it surpassed the rest of the world. This consumer growth is projected to continue and by 2025 it will hit $4 trillion. In fact, consumer expenditure represents about 50-60% of Sub-Sahara African (SSA) economic growth according to Africa Development Bank. This consumption increase is fuelled by the continent’s rising middle-class population which is estimated to be about 330 million in 2018 and by 20160 will touch 1.1 billion (42% of the population). This grabbed the attention of transnational companies and traditional inventors to the region’s market. For instance, Wal-Mart- a US retail giant- invested $2.5 billion in South Africa’s retailer Massmart. This will not only allow Wal-Mart a remarkable network in Africa’s biggest economy but also it will give foothold in 13 other Sub-Saharan countries according to analysts.

Unfortunately, although all SSA countries share the same characteristics that attracted global attention, not all of them will benefit from the upcoming opportunities. Somalia will be the first to be left out. In addition to the insecurity and instability accompanied by lack of basic infrastructure, bad governance and political instability that turn investors away, Somalia faces other challenges which reduce its chance of attracting investments.

One of these challenges is the serious skills shortage that the country currently experiences despite its ever-increasing universities. 70% of Somalia’s population is under the age of 30 and two-thirds of this group are unemployed making among the highest in the world. Lack of skills is a major party of high youth unemployment and the education system is not fit for purpose. Somalia’s universities produce half-baked graduates who, on one hand, consider themselves educated thus not wanting to do menial jobs but, on the other hand, cannot even prepare a simple resume and cover letter. The aim of the universities in the country is to maximize their new recruits regardless of their qualification for the place. Every year, 50,000 new students are enrolled in universities against the 30,000 secondary school graduates meaning tens of thousands who do not finish secondary school are admitted to universities annually. This puts a huge dent on the quality of education and negatively affects employers’ confidence in the new graduates.

Furthermore, there is a mismatch between the required skills in the country and what universities offer. This forces many local employers to import skilled workers from neighboring countries. For instance, construction, which is the fastest growing industry in Somalia, sources civil engineers, quality surveyors and construction machine operators from Kenya, Bangladesh and India because people with these skills are rare in the country.

All countries in the world are competing to get a share in the emerging opportunities in Africa. A good number of African countries are striving to make the most from these opportunities. Some countries, such as Ethiopia and Nigeria, are already doing well in attracting major foreign investment. But some countries like Somalia are lagging behind due to insecurity, lack of basic infrastructure, skills shortage and unprepared labor force.

Since resource extraction is no longer Africa’s main economic driver, human resource is vital for the emerging sectors. The government should not only regulate the higher education but also make urgent reforms and develop higher education policy which is in line with the country’s development strategy and market demands. Employers should be encouraged to recruit locally.